Name: Abdul Nasir Roll No: F20BECON1M01072

Section: B Sub: Political Economy

Regional Trading Blocs and their Markets.

A trading bloc is an association of countries that reduces intra-regional barriers to trade in goods
and sometimes services, investment, capital, and labor as well (Schott, 1991). The emergence of
trading blocs can be traced to the General Agreement on Trade and Tariff (GATT), a multilateral
free trade organization with the main objective of creating one big economic community of all
nations with a market economy. A regional trading block is a collection of countries within a
geographical region that band together to protect themselves from non-member goods.

Regional trade blocks foster intra-block commerce and protect their members from global
competition. According to Schott (1991), successful trading blocs can be characterized by the
following factors:

 Similar levels of per capita GNP;

 Geographic proximity;
 Similar or compatible trading regimes; and
 Political commitment to regional organization

Levels of Trading Arrangements

The stages of economic integration between two or more national economies may be briefly
outlined along the following continuum:

1. Free trade areas: Member countries remove trade barriers with each other but maintain
their own external tariffs. Example: North American Free Trade Agreement (NAFTA)
and European Free Trade Association (EFTA).

2. Customs union: Member countries sets common external tariffs to non-member

countries, a common trade regime is achieved. Custom unions are particularly useful to
level the competitive playing field and address the problem of re-exports. Example:
Benelux, East African Community (EAC), EU–Turkey Customs Union, Gulf
Cooperation Council (GCC).
3. Common market: In addition to free trade, it allows free movement of goods and factors
of production (like labor and capital). Example: European Community (EC).

4. Economic union: It is the highest level of integration which involves harmonization of

public policies, particularly monetary and fiscal policies. Member states agree on
coordinated macroeconomic policies. Example: European Union (EU).

5. Political Union: Most advanced form with a common government and reduced
sovereignty of member countries. Example: United States with its central government
and autonomous states.